By Phil Albinus, Advanced Trading
11 October 2012
Walk onto any Wall Street trading floor — once you get past security, of course — and look around. It doesn’t matter if you’re perusing a buy side or sell side firm, a hedge fund or a broker-dealer, because you’ll see the same thing: Rows and rows of well-dressed, smart-looking people staring at flat panel displays. What are they looking at? Along with email and IM, Web browsers and proprietary tools, more often than not they’re staring into Microsoft Excel.
It has been this way since the mid-1990s. So why hasn’t Microsoft added a “Buy” button to its ubiquitous spreadsheet and called it an order management system (OMS)? Or an execution management system (EMS)?
According to the industry experts, Excel is perfect for displaying data and crunching numbers, but it would keel over if it became a true OMS.
To be fair, when Microsoft created Excel 2.0 for Windows in the late 1980s, it was never meant for ordering stocks and bonds. It was designed as an alternative to the killer spreadsheet apps of its day: VisiCalc in the early ’80s and Lotus 1-2-3 in the early ’90s. Those were the days when The Simpsons was America’s rudest cartoon, Amazon was just a river and Mark Zuckerberg’s Facebook was probably a baby book with a mirror on the plastic cover.
As Asset Control CEO Phil Lynch remembers, Lotus 1-2-3 ruled the DOS landscape before Windows 3.1, the version of Microsoft’s OS that was finally considered stable and ready for business. “Everyone knew the Lotus macros by heart,” Lynch says, “and once they understood the logic, it was both very powerful and very fast–but it lacked the real-time interface that Excel introduced.” Once Excel added a macro conversion function, he recalls, users could convert all of the old spreadsheets.
When Microsoft unveiled Windows 3.1 and later Windows for Workgroups, its network-enabled OS, traders and portfolio managers started installing their own IBM and IBM clone PCs with a stack of floppies labeled Microsoft Excel for Windows.
Steve Rubinow remembers the time well. The CIO of FXAll tells Advanced Trading that traders brought their own solutions from home. “It’s not unlike what you have today with bring your own device. It’s about familiarity,” Rubinow says. “You would install it, and it was not that expensive. It was easy to do. Desk software wasn’t locked down and everyone did what they wanted to do to make them more productive.”
Excel’s rise dovetailed with Wall Street’s adoption of electronic trading. Buy side traders began to use specialized programs for executing trades: namely, OMSs. To ensure that buy siders would execute and process their trades through the sell side or specific broker-dealers, these entities offered OMSs for free or at a nominal price. At the same time, the numbers of screens that a typical trader stared at expanded from two to four and sometimes even six–and Microsoft’s spreadsheet program was on every one of those screens.
So, again, why didn’t Microsoft turn Excel into an OMS? It’s a little complicated.
Where’s the Buy Button?
Although Excel was powerful and its power grew as Intel and AMD unveiled faster microprocessors, Microsoft never aimed its spreadsheet at traders. Microsoft thrived in the 1990s by concentrating on programs that had wide appeal for a variety of users, Rubinow says.
“I don’t think Microsoft thought to push it,” he says. “They were more interested in the obvious applications that would reach millions of users as opposed to tens of thousands. It wasn’t going to be a million-plus seller.” Microsoft’s serious push into the capital markets is a fairly recent occurrence, over the past 10 years, he adds.
Further, turning Excel into an OMS would expose Microsoft–a company already criticized for building software that would often crash during the business day–to real risk. (To be fair, this was back when a robust PC had 16MB of RAM and a 486 Intel microprocessor.) Support for an OMS would have required Microsoft to set up a new specialized area, says David Leinweber, head of Lawrence Berkeley National Laboratory’s Computational Research Division’s Center for Innovative Financial Technology , and a pioneer of algorithmic and high-frequency trading. “Since their product would be moving real money, this would create liability issues,” Leinweber says. (Microsoft declined our requests for an interview.)
The idea of Excel functioning as an OMS is a non-starter, says one high-frequency trader. “Excel is not good for trading,” says Irene Aldridge, managing partner for Able Alpha Trading, a high-frequency trading firm in New York. “It’s too slow and too big, especially for modern markets.”
While Aldridge uses Excel in the classes she teaches at New York University and Stevens Institute of Technology in Hoboken, N.J., she eschews the program during the trading day. The older versions of Excel, with their 36,000 rows, could handle only about 20 minutes of market data volume, she says, while the most recent version, with its 1 million rows, could handle “one to two hours” of today’s market data. “I could not imagine sending orders through Excel,” Aldridge says. “The latency would be tremendous.”
Excel is better suited for more targeted data analysis–for modeling and investment strategies, says Adam Sussman, a senior analyst at Tabb Group. Although Excel connects to the Bloomberg market data feed, “if you’re trying to do back testing in Excel, it’s not going to handle a whole day’s worth of Level 2 data,” he says.
Instead, buy side traders and portfolio managers are using tick databases and assorted storage solutions to house and analyze the data at the same time.
In a 2009 survey of 65 financial firms, Tabb Group found that 83% use spreadsheets for modeling, analyzing and pricing financial instruments. Sixty-four percent of these analyses were done by the equities desk, 26% by fixed income, 25% for listed derivatives desks and 23% for credit desks.
Excel was never intended to be an enterprise solution, says Rubinow, a former technologist at Fidelity Investments and NYSE Euronext . Instead, financial services pros have viewed Excel as a personal productivity tool.
Excel’s Cloudy Future
Unless legions of Microsoft engineers are hard at work on making Excel an order management system, it’s a safe bet that it will remain a spreadsheet and data analysis tool. But could it fade from traders’ desktops for even that purpose? It’s possible, experts say, but unlikely.
As Leinweber puts it, open source, cloud-based spreadsheets are “less capable now but they will improve. That said, the desktop version will be with us for a long time.”
Rubinow thinks Excel could be replaced on traders’ desktops, but only if whatever replaces it is “much, much better.” He adds: “And I don’t know how to define what much, much better is. Does it have 5,000 statistical functions? That’d be great, but I don’t think that would do it. Even if it has other advantages, people are used to certain workflows.”
Even Aldridge, who doesn’t use Excel in her day-to-day high-frequency trading, doesn’t see Excel fading soon. It’s too entrenched on Wall Street trading desks.
Says Lawrence Berkeley’s Leinweber: “Name another spreadsheet program. I can’t.”